Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in . found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Sterling Bancorp (NYSE:STL). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital – but unlike such a sponge they do not always produce something when squeezed.
How Fast Is Sterling Bancorp Growing?
If you believe that markets are even vaguely efficient, then over the long term you’d expect a company’s share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Who among us would not applaud Sterling Bancorp’s stratospheric annual EPS growth of 48%, compound, over the last three years? While that sort of growth rate isn’t sustainable for long, it certainly catches my attention; like a glint in the eye of my lover.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of Sterling Bancorp’s revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I’ve used might not be the best representation of the underlying business. Sterling Bancorp maintained stable EBIT margins over the last year, all while growing revenue 65% to US$1.0b. That’s progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Sterling Bancorp’s forecast profits?.
Are Sterling Bancorp Insiders Aligned With All Shareholders?
I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Sterling Bancorp insiders have a significant amount of capital invested in the stock. Given insiders own a small fortune of shares, currently valued at US$81m, they have plenty of motivation to push the business to succeed. That’s certainly enough to make me think that management will be very focussed on long term growth.
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I’d say they are indeed. I discovered that the median total compensation for the CEOs of companies like Sterling Bancorp with market caps between US$2.0b and US$6.4b is about US$4.9m.
The Sterling Bancorp CEO received US$3.4m in compensation for the year ending December 2017. That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.
Does Sterling Bancorp Deserve A Spot On Your Watchlist?
Sterling Bancorp’s earnings have taken off like any random crypto-currency did, back in 2017. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The sharp increase in earnings could signal good business momentum. Big growth can make big winners, so I do think Sterling Bancorp is worth considering carefully. Of course, identifying quality businesses is only half the battle; investors need to know whether the stock is undervalued. So you might want to consider this free discounted cashflow valuation of Sterling Bancorp.
You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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